What is Monopoly?

Monopoly

Monopoly means a market where there is only one seller of a particular good or service.

Characteristics

• Only one single seller in the market. There is no competition.
• There are many buyers in the market.
• The firm enjoys abnormal profits.
• The seller controls the prices in that particular product or service and is the price maker.
• Consumers don’t have perfect information.
• There are barriers to entry. These barriers many be natural or artificial.
• The product does not have close substitutes.

Advantages of monopoly

• Monopoly avoids duplication and hence wastage of resources.
• A monopoly enjoys economics of scale as it is the only supplier of product or service in the market. The benefits can be passed on to the consumers.
• Due to the fact that monopolies make lot of profits, it can be used for research and development and to maintain their status as a monopoly.
• Monopolies may use price discrimination which benefits the economically weaker sections of the society. For example, Indian railways provide discounts to students travelling through its network.
• Monopolies can afford to invest in latest technology and machinery in order to be efficient and to avoid competition.

Disadvantages of monopoly 

• Poor level of service.
• No consumer sovereignty.
• Consumers may be charged high prices for low quality of goods and services.
• Lack of competition may lead to low quality and out dated goods and services.